Our top three customers represent almost forty percent of our total revenue. We cannot easily fire them, so how do we dilute this concentration risk on our exit runway so a buyer does not severely discount our valuation?

Question

Tyler Smith · Accepted Answer

A heavy customer concentration is one of the fastest ways to destroy your valuation multiple during a sale. If a single customer or your top three clients account for a significant portion of your revenue, a buyer sees a massive risk. If one of those clients leaves post-acquisition, the buyer's investment thesis is ruined, which is why they will demand a steep discount or structure the deal with a large, risky earnout. To dilute this concentration risk on your exit runway, you must focus on building a scalable, institutional sales engine that does not rely on your personal relationships. First, secure long-term, transferable contracts with your largest clients. These agreements should ideally have multi-year terms and assignability clauses that survive a change of control without requiring the client's consent. Second, use your V/TO to align your sales team around expanding your mid-tier accounts and bringing in new business to naturally dilute the percentage of revenue your top clients represent. Finally, shift the client relationship management away from you. Ensure your account managers are the primary faces of the company so that the client's loyalty is to your brand and systems, not to you personally.